If a firm has established monitoring devices that have a 50% chance of detecting shirking,and an employee gains $5,000 from shirking,the employer can deter shirking by having employees post a bond equal to
A) $2,500.
B) $5,000.
C) $10,000.
D) $50,000.

Question

Quizplus · Accepted Answer

To deter shirking, the bond must be equal to the expected gain from shirking divided by the probability of detection. Since the probability of detection is 50%, the bond should be $5,000 / 0.5 = $10,000.

If a Firm Has Established Monitoring Devices That Have a 50